##### 



Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 (Mark One)þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 11, 2004 ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission File Number 0-12800 CUISINE SOLUTIONS, INC.  DELAWARE
    
    52-0948383(State or other jurisdiction of
    
    (IRS Employer Identification Number)incorporation or organization)
 85 S Bragg Street, Suite 600, Alexandria, VA 22312 
 (Registrants telephone number, including area code) (703) 270-2900 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934, during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yesþ No
o Indicate by check mark
whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yeso No
þ Indicate the number of shares outstanding of each of the issuers classes of common stock as of
January 24, 2005. Common Stock 0.01 par value
    
    Number of SharesClass A
    
    15,942,538Class B
    
    None
    1




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##### 



CUISINE SOLUTIONS, INC. PART I: FINANCIAL INFORMATION Item 1. Financial Statements The accompanying unaudited consolidated financial statements have been prepared by the Company
pursuant to the rules and regulations of the United States Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete financial statements.
In the opinion of the Company, all adjustments necessary for the fair presentation of the Companys
results of operations, financial position and changes therein for the periods presented have been
included. 2




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##### 



CUISINE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited) December 11,
    
    
    June 26,2004
    
    
    2004ASSETSCurrent AssetsCash and cash equivalents
    
    $
    610,000
    
    
    $
    1,395,000Trade accounts receivable, net of reserve of $183,000 and
$68,000 as of December 11 and June 26, 2004, respectively
    
    
    4,539,000
    
    
    
    3,754,000Inventory, net
    
    
    7,212,000
    
    
    
    5,420,000Prepaid expenses
    
    
    292,000
    
    
    
    140,000Notes receivable, related party
    
    
    552,000
    
    
    
    58,000Other current assets
    
    
    308,000
    
    
    
    266,000Assets held for disposal from discontinued operations
    
    
    180,000
    
    
    
    1,972,000TOTAL CURRENT ASSETS
    
    
    13,693,000
    
    
    
    13,005,000Investments
    
    
    1,489,000
    
    
    
    1,114,000Property and Equipment, net
    
    
    3,737,000
    
    
    
    3,545,000Other assets
    
    
    26,000
    
    
    
    46,000TOTAL ASSETS
    
    $
    18,945,000
    
    
    $
    17,710,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesLine of Credit
    
    $
    2,024,000
    
    
    $
    Current portion of long-term debt
    
    
    512,000
    
    
    
    921,000Accounts payable and accrued expenses
    
    
    4,696,000
    
    
    
    4,260,000Accrued payroll and related liabilities
    
    
    1,235,000
    
    
    
    1,340,000Liabilities from discontinued operations
    
    
    1,856,000
    
    
    
    3,635,000Total current liabilities
    
    
    10,323,000
    
    
    
    10,156,000Long-term debt, less current portion
    
    
    961,000
    
    
    
    982,000TOTAL LIABILITIES
    
    
    11,284,000
    
    
    
    11,138,000Stockholders equityCommon stock  $.01 par value, 20,000,000 shares authorized,
15,932,538 and 15,834,788 shares issued and outstanding
at December 11, 2004 and June 26, 2004, respectively.
    
    
    159,000
    
    
    
    159,000Class B Stock  $.01 par value, 175,000 shares authorized,
none issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    26,554,000
    
    
    
    26,380,000Accumulated deficit
    
    
    (19,735,000
    )
    
    
    (20,490,000
    )Accumulated Other Comprehensive Income
Unrealized gain on debt and equity investments
    
    
    18,000
    
    
    
    17,000Cumulative translation adjustment
    
    
    665,000
    
    
    
    506,000TOTAL STOCKHOLDERS EQUITY
    
    
    7,661,000
    
    
    
    6,572,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    18,945,000
    
    
    $
    17,710,000
 See accompanying notes to consolidated financial statements. 3




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##### 



CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Second Quarter
    
    
    Year to DateTwelve Weeks Ended
    
    
    Twenty Four Weeks EndedDec 11, 2004
    
    
    Dec 13, 2003
    
    
    Dec 11, 2004
    
    
    Dec 13, 2003NET SALES
    
    $
    11,062,000
    
    
    $
    8,764,000
    
    
    $
    19,765,000
    
    
    $
    15,499,000Cost of goods sold
    
    
    8,066,000
    
    
    
    6,609,000
    
    
    
    14,739,000
    
    
    
    12,043,000Gross Margin
    
    
    2,996,000
    
    
    
    2,155,000
    
    
    
    5,026,000
    
    
    
    3,456,000Selling and administration
    
    
    2,314,000
    
    
    
    1,868,000
    
    
    
    3,943,000
    
    
    
    3,101,000Depreciation and amortization
    
    
    112,000
    
    
    
    110,000
    
    
    
    212,000
    
    
    
    224,000Earnings from operations
    
    
    570,000
    
    
    
    177,000
    
    
    
    871,000
    
    
    
    131,000Nonoperating income (expense) from continuing operations
Investment income
    
    
    14,000
    
    
    
    14,000
    
    
    
    28,000
    
    
    
    31,000Interest expense
    
    
    (46,000
    )
    
    
    (14,000
    )
    
    
    (69,000
    )
    
    
    (18,000
    )Other income (expense)
    
    
    (6,000
    )
    
    
    (42,000
    )
    
    
    (18,000
    )
    
    
    (51,000
    )Total non-operating expense from continuing operations
    
    
    (38,000
    )
    
    
    (42,000
    )
    
    
    (59,000
    )
    
    
    (38,000
    )Earnings from continuing operations before income taxes
    
    
    532,000
    
    
    
    135,000
    
    
    
    812,000
    
    
    
    93,000Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings
from continuing operations before discontinued operations
    
    
    532,000
    
    
    
    135,000
    
    
    
    812,000
    
    
    
    93,000Earnings (Loss) from discontinued operationsEarnings (Loss) from operations of CS Norway
(net of a gain of $571,000 on disposal of assets)
    
    
    61,000
    
    
    
    (72,000
    )
    
    
    (57,000
    )
    
    
    (211,000
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss) from discontinued operations
    
    
    61,000
    
    
    
    (72,000
    )
    
    
    (57,000
    )
    
    
    (211,000
    )NET EARNINGS (LOSS)
    
    $
    593,000
    
    
    $
    63,000
    
    
    $
    755,000
    
    
    $
    (118,000
    )Basic and diluted earnings (loss) per share:Earnings from continuing operations
per common share-basic and diluted
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.05
    
    
    $
    0.01Earnings (loss) from discontinued operations
per common share-basic and diluted
    
    
    
    
    
    
    ($0.01
    )
    
    
    
    
    
    
    ($0.01
    )Net earnings per common share-basic and diluted
    
    $
    0.03
    
    
    
    
    
    
    $
    0.05
    
    
    
    Weighted average shares outstanding-basic
    
    
    15,923,535
    
    
    
    15,824,788
    
    
    
    15,884,852
    
    
    
    15,824,788Common stock equivalents
    
    
    1,186,874
    
    
    
    170,893
    
    
    
    1,060,888
    
    
    
    Weighted average shares outstanding-diluted
    
    
    17,110,409
    
    
    
    15,995,681
    
    
    
    16,945,740
    
    
    
    15,824,788
 See accompanying notes to consolidated financial statements 4




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##### 



CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Year to dateTwenty four weeks endedDec 11,
    
    
    Dec 13,2004
    
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet Income (Loss ) from continuing operations
    
    $
    812,000
    
    
    $
    93,000Net Loss from discontinued operations
    
    
    (57,000
    )
    
    
    (211,000
    )Adjustments to reconcile net loss to
net cash used in operating activitiesDepreciation and amortization
    
    
    356,000
    
    
    
    408,000Allowance for doubtful accounts
    
    
    115,000
    
    
    
    11,000Inventory obsolescence reserve
    
    
    45,000
    
    
    
    (235,000
    )Stock based compensation
    
    
    84,000
    
    
    
    Changes in assets and liabilities:Increase in accounts receivable trade
    
    
    (900,000
    )
    
    
    (1,049,000
    )Increase in inventory
    
    
    (1,837,000
    )
    
    
    (407,000
    )(Increase) Decrease in prepaid expenses
    
    
    (152,000
    )
    
    
    123,000Decrease in notes receivable, related party
    
    
    6,000
    
    
    
    6,000(Increase) Decrease in other assets
    
    
    (22,000
    )
    
    
    147,000Increase (Decrease) in accounts payable and accrued expenses
    
    
    382,000
    
    
    
    (101,000
    )Decrease in accrued payroll and related liabilities
    
    
    (105,000
    )
    
    
    (61,000
    )Increase in other liabilities
    
    
    54,000
    
    
    
    Changes in assets and liabilities of discontinued operations
    
    
    (292,000
    )
    
    
    148,000Gain on disposal of asset from discontinued operation
    
    
    (571,000
    )Net cash used in operating activities
    
    
    (2,082,000
    )
    
    
    (1,128,000
    )CASH FLOWS FROM INVESTING ACTIVITIESSale of investments
    
    
    
    
    
    
    175,000Capital expenditures
    
    
    (547,000
    )
    
    
    (293,000
    )Net cash used in investing activities
    
    
    (547,000
    )
    
    
    (118,000
    )CASH FLOWS FROM FINANCING ACTIVITIESNet borrowings on Line-of-credit
    
    
    2,024,000
    
    
    
    Borrowings on debt obligations
    
    
    
    
    
    
    1,527,000Payments on notes payable
    
    
    (430,000
    )
    
    
    (586,000
    )Proceeds from issuance of common stock
    
    
    90,000
    
    
    
    Net cash provided in financing activities
    
    
    1,684,000
    
    
    
    941,000Net decrease in cash and cash equivalents
    
    
    (945,000
    )
    
    
    (305,000
    )Effect of exchange rate on cash
    
    
    160,000
    
    
    
    269,000Cash and cash equivalents, beginning of period
    
    
    1,395,000
    
    
    
    867,000CASH and CASH EQUIVALENTS, END OF PERIOD
    
    $
    610,000
    
    
    $
    831,000
 See accompanying notes to consolidated financial statements 5




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##### 



Cuisine Solutions, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Unaudited) Unrealized GainAdditional
    
    
    
    
    
    
    (Loss) on Debt
    
    
    Cumulative
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Accumulated
    
    
    and Equity
    
    
    Translation
    
    
    StockholdersStock
    
    
    Capital
    
    
    Deficit
    
    
    Investments
    
    
    Adjustment
    
    

    EquityBalance, June 26, 2004
    
    $
    159,000
    
    
    $
    26,380,000
    
    
    $
    (20,490,000
    )
    
    $
    17,000
    
    
    $
    506,000
    
    
    $
    6,572,000Exercise of common stock options
    
    
    
    
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,000Stock-based compensation
    
    
    
    
    
    
    84,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,000Six periods 2005 net earnings
    
    
    
    
    
    
    
    
    
    
    755,000
    
    
    
    
    
    
    
    
    
    
    
    755,000Other Comprehensive IncomeUnrealized gain on debt
and equity investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    1,000Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159,000
    
    
    
    159,000Other Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160,000Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    915,000Balance, December 11, 2004
    
    $
    159,000
    
    
    $
    26,554,000
    
    
    $
    (19,735,000
    )
    
    $
    18,000
    
    
    $
    665,000
    
    
    $
    7,661,000
 Unrealized GainAdditional
    
    
    
    
    
    
    (Loss) on Debt
    
    
    Cumulative
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Accumulated
    
    
    and Equity
    
    
    Translation
    
    
    StockholdersStock
    
    
    Capital
    
    
    Deficit
    
    
    Investments
    
    
    Adjustment

    
    
    EquityBalance, June 28, 2003
    
    $
    159,000
    
    
    $
    26,284,000
    
    
    $
    (19,486,000
    )
    
    $
    59,000
    
    
    $
    450,000
    
    
    $
    7,466,000Six periods 2004 net loss
    
    
    
    
    
    
    
    
    
    
    (118,000
    )
    
    
    
    
    
    
    
    
    
    
    (118,000
    )Other comprehensive income/(loss)Unrealized loss on debt
and equity investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,000
    )
    
    
    
    
    
    
    (9,000
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    269,000
    
    
    
    269,000Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260,000Comprehensive
Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    142,000Balance, December 13, 2003
    
    $
    159,000
    
    
    $
    26,284,000
    
    
    $
    (19,604,000
    )
    
    $
    50,000
    
    
    $
    719,000
    
    
    $
    7,608,000
 6




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##### 



Cuisine Solutions, Inc. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1) Financial Statements The accompanying unaudited consolidated financial statements have been prepared by the Company
pursuant to the rules and regulations of the United States Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete financial statements.
In the opinion of the Company, all adjustments necessary for the fair presentation of the Companys
results of operations, financial position and changes therein for the periods presented have been
included. 2) Fiscal Periods The Company utilizes a 52/53 week fiscal year which ends on the last Saturday in June. The first,
second and fourth quarters, of fiscal years 2005 and 2004 contain 12 weeks, and the third quarters
contains 16 weeks. 3) Inventory Inventories are valued at the lower of cost, determined by the first-in, first-out method (FIFO),
or market. Inventory consists of: December 11, 2004
    
    
    June 26, 2004Raw materials
    
    $
    2,189,000
    
    
    $
    1,586,000Frozen product & other finished goods
    
    
    4,321,000
    
    
    
    3,335,000Packing materials & supplies
    
    
    909,000
    
    
    
    661,0007,419,000
    
    
    
    5,582,000Less obsolescence reserve
    
    
    (207,000
    )
    
    
    (162,000
    )$
    7,212,000
    
    
    $
    5,420,000
 4) Commitments and Contingencies From time to time, the Company is engaged in ordinary and routine litigation incidental to its
business. Management does not anticipate that any amounts that it may be required to pay by reason
thereof will have a material effect on the Companys financial position or results of operations. 5) Transactions with Related Parties As of December 11, 2004, the Company had an accrued liability of $262,000 payable to Food Research
Corporation (FRC). The liability was previously payable to SOMDIAA and was assumed by FRC.
SOMDIAA is a holding company which is majority owned by Secria, S.A. and Secria Europe, S.A. Both
enterprises are owned by the Jean-Louis Vilgrain family (JLV Group); and FRC is owned by Secria
Europe, S.A. SOMDIAA provides the administration of French Social Security healthcare and
retirement plans for individuals who work within the JLV Group. The primary portion of the accrual
is related to amounts billed from SOMDIAA for separate health and retirement plans for the
President of the Company and two other non-officer key employees. On June 12, 2001, the Company signed an agreement with Inversiones Stefal ltda of Chile, Farmers
Market Land of Germany, Inversiones Continex of Chile, and Iso-Tech Ltda of Brazil (the parties)
to create a partnership, Cuisine Solutions Chile S.A. (Cuisine
Solutions Chile), to build a sous-vide processing facility in Chile. The Company received a
10% interest in the partnership upon execution of the agreement. The intended purpose of the
facility is to produce high quality, value priced whitefish, shellfish and salmon products in Chile
for the Global Retail and Foodservice
markets. 7




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##### 



An agreement to market certain sous-vide
products was signed by the parties and a commercial agreement regarding the purchase of certain raw
materials from Cuisine Solutions Chile was signed in fiscal year 2004. During the Companys second
quarter 2005, the Company sold equipment from its discontinued facility in Norway in exchange for a
note receivable of $500,000 payable in 3 installments, all due before March 2005, and
equity in Cuisine Solutions Chile. The fair value of the
equity was determined by management to be approximately $375,000. The
Companys 10% equity investment in Cuisine Solutions
Chile is accounted for under the cost method as the Company does not have the ability to exercise
significant influence over the operating or financial policy of Cuisine Solutions Chile. Food Investors Corporation (FIC) and FRC are owned by the JLV Group. On October 22, 2003, the
Company entered into a six month term loan in the amount of $500,000 with FIC to provide short term
working capital necessary to expand operations for fiscal year 2004. The loan accrued interest at
5% per annum and was payable upon maturity. In October 2004, the loan was extended to April 22,
2005. Total outstanding principal was $314,000 at December 11, 2004. In addition, on November 10,
2003, the Company entered into a three-year term loan in the amount of $500,000 with FRC to provide
working capital necessary to expand operations. The loan bears interest of 5% per annum and is
payable upon maturity. Under this loan, Cuisine Solutions has been paying interest on a quarterly
basis since April 2004, with a balloon payment for the total amount due three years from the
origination of the loan. On July 10, 2004 the Company entered into an agreement with the Bank of Charles Town in West
Virginia for a $2,500,000 line of credit to finance its working capital requirements in the US.
The line of credit is secured by the Companys US accounts receivable and inventory and further
guaranteed and secured with real estate owned by FRC. This line of credit bears an interest rate
of 0.5% over the prime interest rate (5.50% at December 11, 2004) and is renewable on September 1,
2005. As of December 11, 2004, the outstanding principal was $2,024,000. 6) Discontinued Operations The Companys Board of Directors approved a plan to discontinue manufacturing operations in Norway
on October 26, 2004 as the Company had incurred consecutive losses from its operations in Norway
since inception. The majority of the machinery and equipment used in the Norway facility was sold
to Cuisine Solutions Chile in exchange for a note for $500,000, payable to the Company in three
installments, all due before March 2005, and equity in Cuisine
Solutions Chile. The fair value of the equity was determined by
management to be
approximately $375,000. The Company recorded a gain of approximately $571,000 as a result of the
sale of the equipment in its second quarter of fiscal year 2005. The salmon production from Norway
has been replaced by the production of salmon by Cuisine Solutions Chile. The assets and liabilities from discontinued operations at December 11, 2004 and June 26, 2004 are
as follows: December 11, 2004
    
    
    June 26, 2004Assets of discontinued operations:Cash
    
    $
    158,000
    
    
    $
    96,000Accounts receivable, net
    
    
    16,000
    
    
    
    83,000Other assets
    
    
    6,000
    
    
    
    345,000Fixed assets
    
    
    
    
    
    
    1,448,000Total assets of discontinued operations
    
    $
    180,000
    
    
    $
    1,972,000Liabilities of discontinued operations:Accounts payable and accrued liabilities
    
    $
    687,000
    
    
    $
    1,265,000Note payable
    
    
    1,169,000
    
    
    
    2,370,000Total liabilities of discontinued operations
    
    $
    1,856,000
    
    
    $
    3,635,000
 8




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##### 



The note payable includes a $1,106,000 outstanding loan on a working capital overdraft line of
credit with Den Norske Bank. The overdraft facility is secured by a letter of credit posted by the
U.S. operations banking institution that is renewed semi-annually. Long term investments of
$1,114,000 and a $56,000 cash deposit have been pledged as collateral to secure the letter of
credit. The Company intends to liquidate the investments to satisfy the outstanding debt
obligation. In October 2004, an agreement was signed with Hjelmeland Kommune to release the Company from the
building lease in Norway. Since the lease was originally recorded as a capital lease, the capital
lease asset of approximately $1,349,000 and related lease liability of $1,291,000 were offset with
the difference being charged to discontinued operations. The Company was required, by local law in Norway, to provide notification of termination to all
employees prior to the board of directors approval to discontinue operations. At December 11,
2004, $81,000 was accrued to satisfy serverance payments to such employees. The following amounts related to Cuisine Solutions Norway have been segregated from continuing
operations and reflected as follows: Twelve weeks ended
    
    
    Twenty four weeks endedDec. 11, 2004
    
    
    Dec. 13, 2003
    
    
    Dec. 11, 2004
    
    
    Dec. 13, 2003Net Sales
    
    $
    (1,000
    )
    
    $
    341,000
    
    
    $
    31,000
    
    
    $
    690,000Expenses:Cost of goods sold
    
    
    
    
    
    
    395,000
    
    
    
    113,000
    
    
    
    848,000Selling and administrative expense
    
    
    1,000
    
    
    
    7,000
    
    
    
    1,000
    
    
    
    16,000Other operating expense
    
    
    463,000
    
    
    
    
    
    
    
    463,000
    
    
    
    Interest expense
    
    
    45,000
    
    
    
    11,000
    
    
    
    83,000
    
    
    
    38,000Other expense (income)
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    
    (1,000
    )Loss from discontinued operations
    
    
    (510,000
    )
    
    
    (72,000
    )
    
    
    (628,000
    )
    
    
    (211,000
    )Gain from disposal of assets
    
    
    571,000
    
    
    
    
    
    
    
    571,000
    
    
    
    Net earnings (Loss) from
discontinued operations
    
    $
    61,000
    
    
    $
    (72,000
    )
    
    $
    (57,000
    )
    
    $
    (211,000
    )
 7) Earnings (Loss) Per Share Basic earnings (loss) per common share is computed by dividing earnings (loss) by the weighted
average number of common shares outstanding during the period. Diluted earnings (loss) per common
share also includes common stock equivalents outstanding during the period if dilutive. The
Companys common stock equivalents consist of stock options. The weighted average number of shares
outstanding related to stock options was 2,886,687 and 1,681,375 for the 24 weeks ended December
11, 2004, and December 13, 2003, respectively. For the twenty four weeks ended December 13, 2003,
1,681,375 common stock options were not included in the diluted earnings per share calculations as
the effect would be anti-dilutive. 8) Accounting for stock-based compensation The Company accounts for employee stock option grants using the intrinsic value method in
accordance with Accounting Principles Board (APB) Opinion No. 25 Accounting for Stock Issued to
Employees and related interpretations. Accordingly, compensation expense, if any, is measured as
the excess of the underlying stock price over the exercise price on the date of grant. The Company
complies with the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No.
123 Accounting for Stock Based Compensation, as amended by SFAS No. 148 Accounting for
Stock-Based Compensation  Transition and Disclosure which requires pro-forma disclosure of
compensation expense associated with stock options under the fair value method. Had compensation cost been recognized based on the fair values of options at the grant dates
consistent with the provisions of SFAS No. 123, the Companys earnings (loss) and basic and diluted
earnings (loss) per common share would have been as follows: 9




---



##### 



Twelve weeks ended
    
    
    Twenty four weeks endedDec. 11, 2004
    
    
    Dec. 13, 2003
    
    
    Dec. 11, 2004
    
    
    Dec. 13, 2003Net earnings (loss) applicable to common
shareholders
    
    $
    593,000
    
    
    $
    63,000
    
    
    $
    755,000
    
    
    $
    (118,000
    )Add: Stock-based employee compensation cost
included in reported net earnings (loss)
    
    $
    42,000
    
    
    
    
    
    
    $
    84,000
    
    
    
    Less: Total stock-based compensation expense
determined under the fair value method
    
    $
    (177,000
    )
    
    $
    (70,000
    )
    
    $
    (299,000
    )
    
    $
    (140,000
    )Pro forma net earnings (loss)
    
    $
    458,000
    
    
    $
    (7,000
    )
    
    $
    540,000
    
    
    $
    (258,000
    )Earnings (Loss) per common share:Basic and diluted  as reported
    
    $
    0.04
    
    

    
    
    
    
    $
    0.05
    
    
    $
    Basic and diluted  pro forma
    
    $
    0.03
    
    
    
    
    
    
    $
    0.03
    
    
    $
    (0.02
    )Weighted average common shares outstanding-basic
    
    
    15,923,535
    
    
    
    15,824,788
    
    
    
    15,884,852
    
    
    
    15,824,788Common stock equivalents
    
    
    1,060,888
    
    
    
    170,893
    
    
    
    1,186,874
    
    
    
    Weighted average common shares
outstanding-diluted
    
    
    16,945,740
    
    
    
    15,995,681
    
    
    
    17,110,409
    
    
    
    15,824,788
 9) Recent Accounting Pronouncements In December 2004, Financial Accounting Standard Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) 123 (Revised 2004), Shared-Based Payment. Revised SFAS 123
addresses the requirements of an entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value of the award. The
cost of such award will be recognized over the period during which an employee is required to
provide services in exchange for the award. The Company will be required to adopt this Statement
during the first quarter of fiscal year 2006. The Company is currently evaluating the impact that
this pronouncement will have on it future operations. In December 2004, FASB issued SFAS 151, Inventory Costs an amendment of ARB No. 43, Chapter 4.
This Statement requires abnormal amounts of idle facility expense, freight, handling costs and
wasted material be recognized as current-period charges regardless of whether they meet the
criterion of so abnormal. In addition, this Statement requires that allocation of fixed
production overhead to the costs of conversion be based on the normal capacity of the production
facilities. This pronouncement will be effective for fiscal year 2006. However, as the Company
does not include amounts of idle facility expense, freight, handling costs and wasted material in
its inventory, the adoption of SFAS 151 is not expected to have a material impact on the Companys
financial position or results of operations. 10




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations This filing contains forward-looking statements within the meaning of Section 27A of The Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Those
statements reflect the intent, belief or current expectations of the Company and members of the
management team. Prospective investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risk and uncertainties and that actual results may
differ materially from those contemplated by such forward-looking statements reflecting changed
assumptions, the occurrence of unanticipated events or changes to future operating results over
time. RESULTS OF OPERATIONS Revenue in the second quarter of fiscal 2005 increased $2,298,000 from $8,764,000 to $11,062,000, a
26.2% increase compared to the same quarter of the previous fiscal year due primarily to stronger
sales in most of the sales channels in the US. US Military sales rose by 219.7%, due to the
increased demand from US Navy and Army, and US retail sales improved 60.5%, due to additional
product roll-out, compared to the second quarter of fiscal 2004. Cuisine Solutions, Inc. reported net earnings from continuing operations for the second quarter of
fiscal year 2005 of $532,000 compared to $135,000 for the same quarter of fiscal year 2004. The
294.1% increase in net earnings from continuing operations was primarily due to a 26.2% increase in
sales and a 39.0% increase in gross margin, as a result of higher demands from most of the sales
channels and production efficiency achieved. The Company also reported a gain from discontinued
operations of $61,000 for the second quarter of fiscal year 2005, as compared to a loss of $72,000
for same period in fiscal 2004, due to a $571,000 gain from the sale of machinery and equipment to
Cuisine Solutions Chile as discussed in Note 6. NET SALES Second quarter 2005 revenue of $11,062,000 increased by 26.2% compared to the previous fiscal
years second quarter revenue of $8,764,000. US and France sales grew 35.8% and 11.2%,
respectively, compared to the same quarter in fiscal year 2004. Information as to Cuisine Solution
sales by geographical locations are as follows: Q2 Fiscal 2005
    
    
    Q2 Fiscal 2004
    
    
    $Change
    
    
    %ChangeUSA
    
    $
    7,278,000
    
    
    $
    5,361,000
    
    
    $
    1,917,000
    
    
    
    35.8
    %France
    
    
    3,784,000
    
    
    
    3,403,000
    
    
    
    381,000
    
    
    
    11.2
    %Total Net Sales
    
    $
    11,062,000
    
    
    $
    8,764,000
    
    
    $
    2,298,000
    
    
    
    26.2
    %
 US SALES Fiscal year 2005 second quarter sales in the US increased $1,916,000 to $7,278,000, a 35.7%
increase from the previous fiscal year second quarter sales of $5,361,000. 11




---



##### 



Cuisine Solutions US Fiscal Years 2005 and 2004 second quarter sales by sales channel are as
follows: Q2 FY05
    
    
    Q2 FY04
    
    
    $Change
    
    
    %ChangeFood Service
    
    $
    1,682,000
    
    
    $
    1,375,000
    
    
    $
    307,000
    
    
    
    22.3
    %On Board Services
    
    
    2,480,000
    
    
    
    2,111,000
    
    
    
    369,000
    
    
    
    17.5
    %Retail
    
    
    1,988,000
    
    
    
    1,239,000
    
    
    
    749,000
    
    
    
    60.5
    %Military
    
    
    748,000
    
    
    
    234,000
    
    
    
    514,000
    
    
    
    219.7
    %National Restaurant Chain
    
    
    380,000
    
    
    
    402,000
    
    
    
    (22,000
    )
    
    
    (5.5
    %)Total
    
    $
    7,278,000
    
    
    $
    5,361,000
    
    
    $
    1,917,000
    
    
    
    35.8
    %
 Food Service sales for the second quarter fiscal year 2005 increased $307,000, or 22.3%, to
$1,682,000 as compared to the same quarter of fiscal year 2004 of $1,375,000. The increase was due
primarily to increased sales to hotels and conventions centers for special events. Fiscal year 2005 second quarter sales from the On Board Services channel totaled $2,480,000
compared to previous year second quarter sales of $2,111,000, an increase of $369,000 or 17.5%.
Sales to the On Board Services channel increased in the second quarter as US airlines and passenger
rails continued their recovery from the last three years. Although the airline industry is still
experiencing significant financial problems, the first class and business class food that Cuisine
Solutions provides continues to increase as the number of passengers increase and the number of
Cuisine Solutions product offerings increase. Retail sales for the second quarter of fiscal 2005 increased $749,000 (or 60.5%) to $1,988,000 from
$1,239,000, compared to the same period of the previous fiscal year due primarily to the additional
product roll-out of Cuisine Solutions branded frozen food items to North-American retailers. Military sales for the second quarter 2005 increased 219.7% to $748,000 from $234,000 in fiscal
2004 primarily due to the increased demand from the US Navy and Army. Cuisine Solutions began
delivering items for the Army Field Rations program called the Unitized Group Rations A (UGRA) menu
in October 2004. During the second quarter of fiscal year 2005, the US Army began to supply these
products to locations such as Iraq and Afghanistan. National Restaurant Chain sales for the second quarter of fiscal year 2005 totaled $380,000, down
from $402,000 in fiscal 2004. The small decrease in sales of $22,000 (or 5.5%) is due to decreased
sales to some existing national restaurant chain customers as well as slower new product roll-outs
to new customers. The Company will continue to pursue its role as a supplier for national
restaurant chains who consider the Companys product quality and ease of use an attractive
alternative for providing promotional menu items. FRANCE SALES Cuisine Solutions France fiscal year 2005 second quarter sales compared to the prior year second
quarter and respective exchange rates are as follows: Fiscal 2005
    
    
    Fiscal 2004France Q2 Sales
    
    
    France Q2 Sales
    
    
    $Change
    
    
    %ChangeSales in US Dollars
    
    $
    3,784,000
    
    
    $
    3,403,000
    
    
    $
    381,000
    
    
    
    11.2
    %Sales in Euros
    
    

    2,986,000
    
    
    

    2,914,000
    
    
    

    72,000
    
    
    
    2.5
    %Average Exchange Rate
    
    
    0.789
    
    
    
    0.856
 12




---



##### 



The total fiscal year 2005 second quarter sales in US Dollars were $3,784,000 versus previous year
sales of $3,403,000, an increase of $381,000 or 11.2%. Sales in Euros during the same period were
2,986,000 versus 2,914,000 respectively, an increase of 2.5%. The overall change in sales
in Euros was not significant. As such, changes expressed in US dollars were impacted by
fluctuations in the exchange rate for the reported periods. Cuisine Solutions France fiscal year 2005 second quarter sales by sales channel were as follows: Q2 FY05
    
    
    Q2 FY04
    
    
    $Change
    
    
    %ChangeFood Service
    
    $
    1,863,000
    
    
    $
    1,326,000
    
    
    $
    537,000
    
    
    
    40.5
    %On Board Services
    
    
    532,000
    
    
    
    415,000
    
    
    
    117,000
    
    
    
    28.2
    %Retail
    
    
    1,372,000
    
    
    
    1,660,000
    
    
    
    (288,000
    )
    
    
    (17.3
    %)New Business
    
    
    17,000
    
    
    
    2,000
    
    
    
    15,000
    
    
    
    750.0
    %Total
    
    $
    3,784,000
    
    
    $
    3,403,000
    
    
    $
    381,000
    
    
    
    11.2
    %
 Food Service sales grew $537,000, or 40.5%, to $1,863,000 compared to the second quarter of fiscal
year 2004 and the On Board Services channel grew almost 28.2% compared to the same quarter of
Fiscal 2004. The retail sales decreased $288,000 in second quarter of fiscal year 2005, compared
to same period fiscal year 2004, largely due to the phasing-out of low margin private label items. 13




---



##### 



GROSS MARGIN A comparison of net sales, gross margin and net earnings from operations follows: Quarter EndedDec. 11, 2004
    
    
    Dec. 13, 2003
    
    
    % Change(Dollars in thousands)Net Sales
    
    $
    11,062
    
    
    $
    8,764
    
    
    
    26.2
    %Gross margin
    
    
    2,996
    
    
    
    2,155
    
    
    
    39.0
    %Gross margin percentage
    
    
    27.1
    %
    
    
    24.6
    %Earnings from continuing operations
    
    $
    532
    
    
    $
    135
    
    
    
    294.1
    %Net earnings
    
    $
    593
    
    
    $
    63
    
    
    
    841.3
    %
 Gross margin increased 39.0% compared to the second quarter fiscal year 2004 due primarily to
significantly higher sales, production efficiencies, and better management control over procurement
costs in relation to those sales. Cuisine Solutions has strategically built sales channels over
the past few years to include military and retail accounts and meals for passenger rail lines, and
has seen consistent results in its French subsidiary. Gross margin as a percentage of sales should
continue to increase as sales improve and certain production costs remain fixed. For the second quarter 2005, gross margin in the US increased from 27.7% to 30.0%, due to the
Companys ability to maintain a higher production volume during the period and improved management
control over production planning and procurement costs. The gross margin in France increased from
19.6% to 21.5%, for the same period due to production and procurement efficiencies in relation to
those sales. Cuisine Solutions management is confident that continued larger sales volume, cost
management and production planning will result in higher gross margin. Selling and Administrative Expenses A comparison of selling and administrative costs by geographic location is as follows: Q2 Fiscal 2005
    
    
    Q2 Fiscal 2004
    
    
    $Change
    
    
    %ChangeUSA
    
    $
    1,762,000
    
    
    $
    1,460,000
    
    
    $
    302,000
    
    
    
    20.7
    %France
    
    
    552,000
    
    
    
    408,000
    
    
    
    144,000
    
    
    
    35.3
    %Total SG&A Expenses
    
    $
    2,314,000
    
    
    $
    1,868,000
    
    
    $
    446,000
    
    

    
    23.9
    %
 Selling and administrative expenses increased $446,000 or 23.9% in the second quarter of fiscal
2005 compared to the second quarter of fiscal 2004. Increases in such expenses over the prior year
are mainly the result of hiring sales and marketing personnel. Selling and administrative expenses
as a percentage of sales decreased to 20.9% in the second quarter of fiscal 2005 and was comparable
to the 21.3% in the same quarter of fiscal year 2004. Cost cutting strategies implemented in
previous years continue to benefit earnings from operations. Management will continue to monitor
such costs to ensure that they are aligned with expected business volume. Depreciation and Amortization Depreciation and amortization increased $9,000 to $185,000 for the second quarter of fiscal year
2005, compared with $176,000 for the same period in 2004. This increase is related to the fiscal
year 2005 purchase of equipment in the US and France. Non-operating Income and Expense from Continuing Operations Investment income consists of income earned on funds invested in corporate bonds and treasury
bills. 14




---



##### 



Management maintains these funds in a trust account with the majority of the funds invested in
government securities. Interest expense relates to the borrowings of the Companys French subsidiaries, as well as the USA
operations short-term borrowings. Also included in the Non-operation Income and Expense from Continuing Operations is foreign
exchange losses of $4,000 and $26,000 for the twelve weeks ended December 11, 2004 and December 13,
2003, respectively. Provision for Taxes No provision for income taxes was recorded during the second quarter of fiscal 2005 given the
Companys history of losses. Management will continue to evaluate the Companys ability to benefit
from its deferred tax assets and make adjustments as necessary to the valuation allowance. Discontinued Operation The Companys Board of Directors approved a plan to discontinue its manufacturing operations in
Norway on October 26, 2004 as the Company had incurred consecutive losses from its operations in
Norway since inception. The majority of the machinery and equipment used in the Norway facility
was sold to Cuisine Solutions Chile in exchange for a note for $500,000, payable to the Company in
three installments, all due before March 2005, and equity in
Cuisine Solutions Chile. The fair value of the equity was determined
by management to be
approximately $375,000. The Company recorded a gain of approximately $571,000 as a result of the
sale of the equipment in its second quarter of fiscal year 2005. The salmon production from Norway
has been replaced by the production of salmon by Cuisine Solutions Chile. The discontinued operation in Norway had reported a $61,000 gain for the second quarter fiscal year
2005 as compared to a loss of $72,000 same period last year. The gain in the second quarter 2005
is mainly due to the gain on disposal of equipment of $571,000 and the expenses of $510,000
associated with the discontinuation. In October 2004, an agreement was signed with Hjelmeland
Kommune to release the Company from the building lease in Norway. Since the lease was originally
recorded as a capital lease, the capital lease asset of approximately $1,349,000 and related lease
liability of $1,291,000 were offset with the difference being charged to discontinued operations.
The Company was required, by local law in Norway, to provide notification of termination to all
employees prior to the board of directors approval to discontinue operations. At December 11,
2004, $81,000 was accrued to satisfy severance payments to such employees. 15




---



##### 



Twenty Four Weeks Ended December 11, 2004 Compared to Twenty Four Weeks Ended December 13, 2003 RESULTS OF OPERATIONS Revenue for the first two quarters of fiscal 2005 increased $4,266,000 from $15,499,000 to
$19,765,000, a 27.5% increase compared to same period the previous year, primarily due to the
increased sales to the Military and Retail in the US, as well as, increased sales in the Food
Service and On Board Service channels in France. Cuisine Solutions, Inc. reported a 773.1% increase in net earnings from continuing operations of
$812,000 for the first two quarters of fiscal 2005 compared to net earnings from continuing
operations of $93,000 for the same period a year ago. The increase in earnings was primarily driven
by a 27.5% increase in sales and lower cost of goods sold due to manpower efficiencies and lower
raw material cost. The Company reported a loss of $57,000 from discontinued operations, compared
with the loss of $211,000 in same period last year, as a result of the discontinuation of its
Norway manufacturing operations in October 2004, as further described in note 6 of the Notes to the
Consolidated Financial Statements. NET SALES Revenue for the first two quarters fiscal year to date increased from $15,499,000 to $19,765,000, a
27.5% increase compared to same period the previous year, primarily due to the increased sales to
the Military and Retail in the US, as well as increased sales in the Food Service and On Board
Service channels in France. Information as to Cuisine Solution sales by geographical locations is
as follows: YTD Fiscal 2005
    
    
    YTD Fiscal 2004
    
    
    $Change
    
    
    %ChangeUSA
    
    $
    13,258,000
    
    
    $
    9,536,000
    
    
    $
    3,722,000
    
    
    
    39.0
    %France
    
    
    6,507,000
    
    
    
    5,963,000
    
    
    
    544,000
    
    
    
    9.1
    %Total Net Sales
    
    $
    19,765,000
    
    
    $
    15,499,000
    
    
    $
    4,266,000
    
    
    
    27.5
    %
 US SALES Fiscal year 2005 YTD sales in the US increased $3,722,000 to $13,258,000, a 39.0% increase from the
previous fiscal year YTD sales of $9,536,000. Cuisine Solutions US Fiscal Years 2005 and 2004 YTD sales by sales channel are as follows: YTD FY05
    
    
    YTD FY04
    
    
    $Change
    
    
    %ChangeFood Service
    
    $
    2,723,000
    
    
    $
    2,456,000
    
    
    $
    267,000
    
    
    
    10.9
    %On Board Services
    
    
    5,181,000
    
    
    
    4,246,000
    
    
    
    935,000
    
    
    
    22.0
    %Retail
    
    
    2,555,000
    
    
    
    1,523,000
    
    
    
    1,032,000
    
    
    
    67.8
    %Military
    
    
    1,985,000
    
    
    
    652,000
    
    
    
    1,333,000
    
    
    
    204.4
    %National Restaurant Chain
    
    
    814,000
    
    
    
    659,000
    
    
    
    155,000
    
    
    
    23.5
    %Total
    
    $
    13,258,000
    
    
    $
    9,536,000
    
    
    $
    3,722,000
    
    
    
    39.0
    %
 Food Service revenue increased 10.9% or $267,000 as compared to the same period of fiscal year
2004. The increase was due primarily to increased sales to hotels and conventions centers for
special events. Fiscal year 2005 sales from the On Board Services channel totaled $5,181,000 compared to previous
fiscal sales of $4,246,000, an increase of $935,000 or 22.0%. Sales to the On Board Services
channel increased
as US airlines and passenger rails continued their recovery from the last three years. The On
Board 16




---



##### 



Services channel continued to increase the number of products it provides to the carriers who
continue to provide in-flight food. Retail sales for the first two quarters of fiscal 2005 increased $1,032,000 (or 67.8%) to
$2,555,000 from $1,523,000, compared to the same period of the previous fiscal year due primarily
to the additional product roll-out of Cuisine Solutions branded frozen food items to North-American
retailers. Military sales for fiscal 2005 increased 204.4% to $1,985,000 from $652,000 compared to fiscal 2004
primarily due to the increased sales to the US Army and Navy. Also, Cuisine Solutions began
delivering items for the Army Field Rations program called the Unitized Group Rations A (UGRA) menu
in October 2004. The US Army began to supply these products to locations such as Iraq and
Afghanistan in the second quarter of fiscal year 2005. National Restaurant Chain sales for the first half of fiscal year 2005 totaled $814,000, up from
$659,000 in fiscal 2004. The sales increase of $155,000 (or 23.5%) is attributed to increased sales
to existing national restaurant chain customers as well as limited sales to new customers. The
Company will further pursue its role as a supplier for national restaurant chains who consider the
Companys product quality and ease of use an attractive alternative for providing promotional menu
items. FRANCE SALES Cuisine Solutions Frances fiscal year 2005 YTD sales compared to prior year and respective
exchange rates are as follows: Fiscal 2005
    
    
    Fiscal 2004France YTD Sales
    
    
    France YTD Sales
    
    
    $Change
    
    
    %ChangeSales in US Dollars
    
    $
    6,507,000
    
    
    $
    5,962,000
    
    
    $
    545,000
    
    
    
    9.1
    %Sales in Euros
    
   
    5,216,000
    
    
    
    5,192,000
    
    
    

    24,000
    
    
    
    0.5
    %Average Exchange Rate
    
    
    0.802
    
    
    
    0.871
 Total fiscal year 2005 sales in US Dollars were $6,507,000 compared to previous year sales of
$5,962,000, an increase of $545,000 or 9.1%. Sales in Euros during the same period were
5,216,000 compared to 5,192,000, an increase of 0.5%. The increases are due primarily to
the fluctuations in the exchange rate for the respective periods. Cuisine Solutions France fiscal year 2005 sales by sales channel were as follows: YTD FY05
    
    
    YTD FY04
    
    
    $Change
    
    
    %ChangeFood Service
    
    $
    3,029,000
    
    
    $
    2,226,000
    
    
    $
    803,000
    
    
    
    36.1
    %On Board Services
    
    
    1,049,000
    
    
    
    891,000
    
    
    
    158,000
    
    
    
    17.7
    %Retail
    
    
    2,388,000
    
    
    
    2,839,000
    
    
    
    (451,000
    )
    
    
    (15.9
    %)New Business
    
    
    41,000
    
    
    
    7,000
    
    
    
    34,000
    
    
    
    485.7
    %Total
    
    $
    6,507,000
    
    
    $
    5,963,000
    
    
    $
    544,000
    
    
    
    9.1
    %
 The On Board Services channel in France grew 17.7% compared to the same period of Fiscal 2004,
while Food Service channel grew $803,000, or 36.1%, to $3,029,000 compared to the fiscal year 2004
YTD. Retail sales decreased $451,000 compared to fiscal year 2004 largely due to the phasing-out
of low margin private label items. 17




---



##### 



GROSS MARGIN A comparison of net sales, gross margin and net earnings from operations follows: Year to DateDec. 11, 2004
    
    
    Dec. 13, 2003
    
    
    % Change(Dollars in thousands)Net Sales
    
    $
    19,765
    
    
    $
    15,499
    
    
    
    27.5
    %Gross margin
    
    
    5,026
    
    
    
    3,456
    
    
    
    45.4
    %Gross margin percentage
    
    
    25.4
    %
    
    
    22.3
    %Earnings from continuing operations
    
    $
    812
    
    
    $
    93
    
    
    
    773.1
    %Net earnings (loss)
    
    $
    755
    

    
    
    ($118
    )
    
    
    739.8
    %
 Gross margin increased 45.4% compared to the fiscal year 2004 due primarily to significantly higher
sales, increased production efficiencies, and better control over procurement costs. Gross margin
as a percentage of sales should continue to increase as sales improve and certain costs remain
fixed. Gross margin in the US increased from 24.8% to 27.8% due to the Companys ability to maintain a
higher production volume during the period. The gross margin in France increased from 18.3% to
20.7% due to production and procurement efficiencies in relation to those sales. Cuisine Solutions
management is confident that continued larger sales volume, cost management and production planning
will result in high gross margins. Selling and Administrative Expenses A comparison of selling and administrative costs by geographic location is as follows: YTD Fiscal 2005
    
    
    YTD Fiscal 2004
    
    
    $Change
    
    
    %ChangeUSA
    
    $
    3,019,000
    
    
    $
    2,394,000
    
    
    $
    625,000
    
    
    
    26.1
    %France
    
    
    924,000
    
    
    
    707,000
    
    
    
    217,000
    
    
    
    30.7
    %Total SG&A Expenses
    
    $
    3,943,000
    
    
    $
    3,101,000
    
    
    $
    842,000
    
    
    
    27.2
    %
 Selling and administrative expenses increased $842,000 or 27.2% in fiscal 2005 compared to the same
period of fiscal 2004. Expenses as a percentage of sales slightly decreased to 19.9% in fiscal
2005 comparable to the 20.0% same period in fiscal year 2004. The increase in selling expenses is
mainly attributed to additional sales and administrative personnel hired to handle the growth in US
and France. Management will continue to monitor such costs to ensure that they are aligned with
expected business volume. Depreciation and Amortization Depreciation and amortization remained consistent for fiscal year 2005 and 2004. Discontinued Operation The Companys Board of Directors approved a plan to discontinue its manufacturing operations in
Norway on October 26, 2004 as the Company had incurred consecutive losses from its operations in
Norway since inception. The majority of the machinery and equipment used in the Norway facility
was sold to Cuisine Solutions Chile in exchange for a note for $500,000, payable to the Company in
three installments, all due before March 2005, and equity in
Cuisine Solutions Chile. The fair value of the equity was determined
by management to be
approximately $375,000. The Company recorded a gain of approximately $571,000 as a result of the
sale of the equipment in its second quarter of fiscal year 2005. The salmon production from Norway
has been replaced by the production of salmon by Cuisine Solutions
Chile. 18




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The discontinued operation in Norway had reported a $57,000 loss for the first two quarters fiscal
year 2005 as compared to a loss of $211,000 same period last year. The loss in the first two
quarters 2005 includes a gain on disposal of equipment of $571,000 and the expenses of $510,000
associated with the discontinuation. In October 2004, an agreement was signed with Hjelmeland
Kommune to release the Company from the building lease in Norway. Since the lease was originally
recorded as a capital lease, the capital lease asset of approximately $1,349,000 and related lease
liability of $1,291,000 were offset with the difference being charged to discontinued operations.
The Company was required, by local law in Norway, to provide notification of termination to all
employees prior to the board of directors approval to discontinue operations. At December 11,
2004, $81,000 was accrued to satisfy serverance payments to such employees. Impact of Inflation and the Economy Variations in labor and ingredient costs can significantly affect the Companys operations. Many
of the Companys employees are paid hourly rates related to, but generally higher than the federal
minimum rates. The Companys sales pricing structure allows for the fluctuation of raw material prices. As a
result, market price variations do not significantly affect the gross margin realized on product
sales. Customer sensitivity to price changes can influence the overall sale of individual
products. In the event of accelerated commodity price increases, the Company may suffer a
short-term loss since customers cannot accept multiple price changes in short periods of time. The
Company will continue to investigate larger purchase contracts for key raw materials where pricing
to the customer can also be contracted. In an effort to increase diversification to lower the impact of various economic events, management
has re-focused its efforts to diversify sales in order to attain an even mix between sales
channels. During the first two quarters of fiscal year 2005, the sales to the On Board Services
channel, primarily airline and railroad accounts, were 31.5% of total revenues. Sales to the
Foodservice Industry was 29.1%, primarily to hotel, restaurants and banquets, and 25.0% of sales
were generated from the Retail channel. Military sales, to both the US Army and Navy, accounted
for 10.0% of the total sales in the first two quarters of fiscal year 2005. Management has also
placed increased focus on the National Restaurants Chain in the US. Liquidity and Capital Resources At December 11, 2004, the Companys cash and cash equivalents were $610,000, compared with
$1,395,000 at June 26, 2004. The decrease is primarily the result of cash used in operations of
$2,082,000, offset by borrowings on the line of credit. Additionally, the Company held long term

investments of $1,489,000 and $1,114,000 at December 11, 2004 and June 26, 2004, respectively. Long
term investments and a cash deposit of $56,000 and $25,000 were used as collateral for the Standby
Letter of Credit that secures the overdraft facility of the Norwegian subsidiary. There were no
other restrictions on cash balances at December 11, 2004. Net cash used by operations amounted to $2,082,000 for the first two quarters of fiscal 2005,
compared to cash used of $1,128,000 for the same period in fiscal 2004. In the first two quarters
of fiscal 2005, the Company used $1,792,000 to increase its inventory in preparation for its peak
season in the second quarter. Cash in the amount of $548,000 was used by investing activities
largely due to the investment in new production equipment. Financing activities provided net cash
of $1,684,000. At December 11, 2004, the Company had borrowings of $3,497,000, bearing interest at rates ranging
from 3.3% to 6.6%. In December 2000, Cuisine Solutions France entered into a five-year capital lease obligation for a
cooking machine with an initial principal amount of $435,000 and 6% interest on the outstanding
balance of the lease. The outstanding principal totaled $85,000 at December 11, 2004. In October
2002, Cuisine Solutions 19




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France entered into a ten year term loan to finance the acquisition of land and a building to be
used as a distribution plant in the amount of 190,000 or $217,000. This loan bears interest of
5.7% and is due in October 2012. The current portion of this loan is 15,000 (or $20,000) and
the outstanding principal totaled 159,000 (or $211,000) at December 11, 2004. In March 2003,
Cuisine Solutions France entered into a five year term loan to further expand the facility. This
loan bears interest of 3.3% and the outstanding principal totaled 201,000 (or $266,000) at
December 11, 2004, with a current portion of 52,000 (or $69,000). In June 2004, Cuisine
Solutions France entered into a four year term loan to finance its new computer server and
packaging line equipment in the amount of 57,000 or $69,000. The loan bears interest of 3.95%
and the total outstanding principal was 52,000 (or $68,000) at December 11, 2004, with a
current portion of 12,000 (or $16,000). On October 22, 2003, the Company entered into a six month term loan in the amount of $500,000 with
FIC to provide working capital necessary to expand US operations. The loan accrued interest at 5%
per annum and was payable upon maturity. In October 2004, the loan was extended to April 22, 2005.
Total outstanding principal was $314,000 at December 11, 2004. In addition, on November 10, 2003,
the Company entered into a three-year term loan in the amount of $500,000 with FRC to provide
working capital to its US operations. The loan bears interest of 5% per annum and is payable upon
maturity. Under this loan, Cuisine Solutions pays interest on a quarterly basis beginning in April
2004, with a balloon payment for the total amount due three years from the origination of the loan.
As discussed in Note 5, FIC and FRC are 100 percent owned by Cuisine Solutions majority
shareholder, the JLV group. On July 10, 2004, the Company entered into an agreement with the Bank of Charles Town in West
Virginia for a $2,500,000 line of credit to finance its working capital requirements in the US.
The line of credit is secured by the Companys US accounts receivable and inventory and further
guaranteed by FRC and secured by real estate owned by FRC. This line of credit bears an interest
rate of 0.5% over the prime interest rate, or 5.5% as of December 11, 2004, and is renewable on
September 1, 2005. The outstanding principal was $2,024,000 as of December 11, 2004. The Companys discontinued Norwegian subsidiary has an outstanding working capital commitment for
its liquidity needs in Norway in the form of an overdraft facility. As of December 11, 2004, the
Company had an outstanding balance of $1,106,000 under the line of the credit. The Company intends
to liquidate its long-term investments to satisfy this debt obligation. Additionally, in October
2004, an agreement was signed with Hjelmeland Kommune to release the Company from the building
lease in Norway. Since the lease was originally recorded as a capital lease, the capital lease
asset of approximately $1,349,000 and related lease liability of $1,291,000 were offset with the
difference being charged to discontinued operations. 20




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Future Prospects Cuisine Solutions anticipates strong growth in sales in the US and moderate growth in France during
fiscal year 2005. Effort will be made to grow all channels in both the US and France as a hedge
against a disruption in any one channel in any geographic location. Food Service The Food Service channel will continue to manage the hotel, resort and convention center restaurant
and banquet menu programs while working to reduce distribution costs of shipping directly to the
customers facilities. The fiscal 2005 strategy involves the continued penetration into large key
national accounts, banquet centers and casinos. Demand has started to level-off in the US for Low
Carbohydrate items in the Food Service channel. Demand for food service products in France
increased significantly during the past two years and we expect further growth for fiscal year 2005
due to continued satisfaction with the quality and variety of products offered by the Company.
Customers in the Food Service sales channel place high value on the labor savings, quality,
consistency, and food safety associated with Cuisine Solutions products. Management will work to
find new growth strategies for this channel, including adding sales personnel where appropriate and
improving distribution to our customers. On Board Services On Board Services was highly affected by the slowdown of the travel industry after September 2001.
However, close customer focus has continued to show very positive results over the last year.
Cuisine Solutions will continue to pursue growth by increasing the number of menu items sold to
each of its customers working directly and indirectly with the airlines and railways in the US and
in Europe. As the airline and related support industries search for more options to reduce costs
and consolidate their workforces, management is exploring opportunities with each airline to
provide them with high quality, fully cooked first class and business class meals that provide
greater potential flexibility and less labor to the customers. There is still instability and risk
associated with this market, and management is taking a cautious approach with all of our business
partners in the supply chain. Cuisine Solutions has also experienced increased sales in the
passenger rail industry over the last year which is expected to continue. Retail Fiscal 2005 showed significant growth in the Companys retail sales program, particularly with the
club retailers, and it is beginning to allow the Company to capture the high volume benefits of US
retail without the marketing investment usually required in doing business with US retailers.
Cuisine Solutions is also beginning to gain brand awareness from its premium frozen foods sales.
Cuisine Solutions will continue to introduce new product offerings to retail in fiscal 2005 and
hopes to see significant growth in this channel during the fiscal year. Cuisine Solutions has been
eliminating some of its low margin private label items in France over the last two quarters and
will continue to monitor its marketing strategy in France. Military The US Military channel in particular, the Navy, continues to be managed via a broker/distributor,
adding very little in terms of sales and administrative expense. The Company has been working for
over a year to place items into the Army Unitized Group Rations A (UGR-A) program. Two Cuisine
Solutions items were tested and selected for a 14 entrée rotating menu which began in October 2004.
Cuisine Solutions will very likely place the same two products on the Army 21 day cycle Concept of
Operations (CONOPS) menu for overseas military operations dining halls. There is no guarantee that
the Army will purchase the items from the Company, but the UGR-A menu started in second quarter of
fiscal year 2005 and could lead to strong growth in this channel. The Company will also attempt to
place its products on other US military menus during fiscal year 2005. 21




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National Restaurant Chains The Company will further pursue its role as a supplier to national restaurant chains in both the US
and France which consider the Companys product quality and ease of use an attractive alternative
for providing new and promotional menu items. The Company is also focusing on products that are
very difficult for a restaurant chain to prepare because of complexity or long cooking times. The
Company had significant sales growth in this channel in the US during fiscal year 2004, and has
added one additional sales person to this channel to help increase its growth in 2005. Although
the Companys products are of relatively high cost for many chains, management believes there is a
significant untapped market for our upscale, fully cooked products for the same reasons such
products are appealing to hotels and resorts. 22




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##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk The principal market risks (i.e. the risk of loss arising from adverse changes in market rates and
prices) to which we are exposed are Interest rates, foreign exchange rates, sales and marketing. Interest rate exposure: The Companys exposure to market risk for changes in interest rates relates primarily to the
Companys investment and debt portfolio. The Company has not used derivative financial instruments
in its investment portfolio. The Company places its investments with high quality issuers. A
portion of the debt portfolio has fluctuating interest rates, which change with changes in the
market. Foreign Currency Risk: The majority of the Companys sales are denominated in U.S. dollars, thereby limiting the Companys
risk to changes in foreign currency rates. The French subsidiary reports its operations in Euros.
As currency exchange rates fluctuate, translation of the income statement for the French operations
into U.S. dollars affects year-over-year comparability of operating results. Sales, which are
subject to these foreign currency fluctuations, are currently 32.9% of the Companys sales. The
total assets of the subsidiaries are approximately 37.7% of the Companys total assets. The
Company does not enter into hedge transactions to minimize volatility of reported earnings because
it does not believe it is justified by the exposure or the cost. Sales and Marketing Risks: Cuisine Solution is introducing and rolling-out new product lines into the Retail sector. Cuisine
Solutions Management has put significant focus on the opportunities available in the retail sector
and the success rate will be contingent upon market acceptance of the product line, price points
and execution of its marketing strategy. Another risk includes fewer customers in the retail
channel totaling larger percentages of the overall Cuisine Solutions revenue. The company is also
focusing on the US military and National Restaurant Chains coupled with Retail as a hedge against
further disruption to the travel industry which may or may not be successful for Cuisine Solutions
in the long term. The travel industry, and specifically the airlines, has been a major source of Cuisine Solutions
revenue and formal business strategy. Management cannot forecast the continued stability of the
industry. Cuisine Solutions will position itself to provide maximum value to our airline and travel
related partners during these turbulent times. Although Cuisine Solutions products have been selected for the Army UGR-A program, and will likely
be added to the CONOPS program, there is no guarantee that the Army will buy from Cuisine Solutions
and there is no volume guarantee or guarantee the products will stay on the menu. The potential
volumes would also decrease as the US military returns to a peacetime environment. Item 4. Controls and Procedures Within 120 days prior to the date of this report, Management carried out an evaluation of the
effectiveness of the design and operation of the Companys disclosure controls and procedures,
pursuant to Exchange Act Rule 13a-14 and 15d-14. Based on the foregoing, the Principal Executive
Officer and Principal Financial Officer concluded that the Companys disclosure controls and
procedures are effective to timely alert them to any material information relating to the Company
that must be included in the Companys periodic SEC filings. In addition, there have been no
significant changes in the Companys internal controls or in other factors that could significantly
affect internal controls subsequent to the date of the most recent evaluation. 23




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##### 



CUISINE SOLUTIONS, INC. PART II: OTHER INFORMATION Item 1. Legal Proceedings. At the end of fiscal year 2002, the Company filed a civil lawsuit in the Federal District Court of
Brasilia against the controlling partner in the joint venture, Cuisine Solutions do Brasil Ltda, as
a result of the Brazilian partners failure to disclose financial information and operating results
of Cuisine Solutions do Brasil Ltda to Cuisine Solutions Inc. according to both the joint venture
agreement and Brazilian law. The Company claims full recovery of the amounts owed by Cuisine
Solutions do Brasil Ltda, including a loan of $763,000, and management and administrative fees of
$895,000 according to the Joint Venture agreement with the Brazilian Partner. Such amounts have
been fully reserved for in prior years. The managing directors of Cuisine Solutions do Brasil
Ltda, Jose Sanchez Aguayo and Rodrigo Sanchez, were named as nominal defendants in the lawsuit. Due
to the current stage of the filed lawsuit, management cannot predict a judgment and the ultimate
outcome from this lawsuit. There are no other material pending legal proceedings, other than ordinary, routine litigation
incidental to the Companys business, to which the Company is a party or to which any of its
property is subject. Management does not believe that any amounts it may be required to pay by
reason thereof will have a material effect on the Companys financial position or results of
operations. 24




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##### 



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized. CUISINE SOLUTIONS, INC.Date:      January 25, 2005
    
    By:
    
    /s/Stanislas VilgrainStanislas VilgrainChief Executive OfficerBy:
    
    /s/Y. Tristan KuoY. Tristan KuoVice President of Finance,Treasurer andCorporate Secretary
 25